Encore: Tesla vs Detroit | Survival Mode | 2

0:00This series originally aired in 2022.

0:12It's February 2010 in Fremont, California. Holy crap, I can't believe this place. It's like a city. Elon Musk is on an undercover tour of an old Toyota factory. He's dressed in a hard hat, goggles, and a company jacket. Toyota doesn't want him to be recognized. They don't want any mention leaked that they might be unloading the factory. Musk gawks as a company manager guides him through the cavernous facility. It's big, all right. Five million square feet on 370 acres. Big enough to allow 10 ,000 workers to manufacture half a million cars per year. It was built back in... I know the history. GM built it in 1962.

0:54You guys partnered with him in 84 and started rolling out Corollas, Prisms, Novas, and Tacomas. Musk has done his homework on the facility. And he wants it. Actually, he needs it. If Tesla is going to snare the U.S. government's EV incentive loan of$465 million, he has to find a factory to mass-produce the Model S. Or it won't happen. I've got to admit, I was surprised when we got the call from Mr. Toyota approving your visit. Competitors aren't usually allowed in here. Ico Toyota is the president and CEO of Toyota, and the grandson of the founder. Though Musk has reached out to him many times, no one has ever responded.

1:41Until now. Musk smiles to himself. That means he's on Toyota's radar. Even better, he likes the idea that the planet's biggest carmaker considers Tesla a competitor. So where is your current plan? In an old Chevy dealership in Menlo Park. Seems like you're going to need something bigger if you're going to produce the Model S in big numbers. Musk watches the cars move down the assembly line, which is about the length of a football field. It's lined with gleaming Tacoma trucks. Back in Menlo Park, his people are putting together cars by hand, one by one. Now that General Motors, Toyota's partner in the factory, has filed for Chapter 11 bankruptcy, word is that Toyota is looking to sell.

2:29They don't need the massive place flying solo. Musk can already envision the name Tesla on the front of the sprawling facility. And with the clock ticking on the government loan, he needs to close a deal. With Toyota relocating its operations to Texas, the company should be a motivated seller. But how motivated? A major plant like this, something that can compete with anything in Detroit, starts at around$1 billion. And Musk has only$42 million to spend. Getting Toyota to allow Musk to tour the plant is one thing. getting him to sell the place at a bargain basement price is something else entirely.

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5:08From Wondery, I'm David Brown, and this is Business Wars.

5:34In our last episode, Tesla went from an experimental idea concocted by a handful of Silicon Valley tech nerds who had never built a car, to an actual company. Elon Musk joined in, providing financial backing from his windfall after selling PayPal. Against all odds, the fledgling business developed the Roadster, a stunning, expensive sports EV. Manufactured in small numbers, it nevertheless put Tesla on the map. In 2010, Tesla Motors is only seven years old. It's made about 1 ,300 cars, but the company has already experienced tremendous highs and devastating lows. Elon Musk, and just about everyone who works with him, is a victim of his hyper-charged ambition.

6:26He's both an inspirational and polarizing figure, whose goal is to change the way the traditional auto industry works. And, as his many followers have maintained for decades, Musk wants to save humanity. It's been a struggle, but Detroit is finally bowing to the Tesla vision, moving electric vehicles to the top of production slates. In other words, now that Tesla has chummed the waters, Motor City wants to control the EV market. For now, Musk is pinning his hopes on the Model S. But he still needs some place to actually make the cars. If he can't score a factory, the car is just a cool concept.

7:12Things have to come together quickly, or Tesla is toast. This is Episode 2, Survival Mode.

7:28It's a lovely morning in April 2010 at Elon Musk's mansion in Bel Air, California. Good morning, guys. Smiling broadly, Musk walks out to greet two men waiting for him in the driveway, Tesla's CFO and the company's vice president of business development. They look at Musk and frown. He's wearing a tie covered with blood. Good morning, Elon. What's up with the tie? Musk stares back at them for what seems like an eternity. And then... Gotcha! It's fake blood! The men grin and shake their heads. Typical Elon. The company's future is on the line and he comes up with this stunt. I knew you guys would be nervous about today.

8:15Just thought I'd lighten the mood. After weeks of wrangling, the president of Toyota is moments away from arriving at Musk's house. Musk's goal is to convince Ico Toyota to sell him the Toyota plant for a fraction of what it's worth. Don't worry, I have a good feeling about today. I think Ico and I are going to hit it off. But do I bow or shake hands? Before anyone can answer, a fleet of shiny black Toyota minivans peel into the driveway. Musk quickly rips off his gag tie. A door opens, and Ico Toyota steps out, followed by his entourage. He extends his hand and a big smile. Mr. Musk, a pleasure to meet you.

9:03Call me Elon, the pleasure's all mine. Toyota glances admiringly at the gleaming red Tesla in the driveway. The Roadster. Does it drive as good as it looks? Absolutely. But why not see for yourself? Toyota quickly gets behind the wheel. He's a veteran of European endurance races and a fully qualified Toyota test driver. Musk hops in next to him. After a few hair-raising minutes of gunning around the hills, Toyota guides the silent car back into Musk's driveway. The men sit in the roadster as Toyota turns to look Musk in the eye. That was fun, Elon. My compliments on your car, and on managing to get it into the marketplace.

9:48That's not an easy thing. What you've done with Tesla is very impressive. Thank you, that means a lot, Ico. But I'll be honest with you, if I'm going to keep Tesla going, I need to buy your factory, and the price needs to be right. Toyota smiles at him. I like your spirit, Elon. And what price would be right? Musk doesn't miss a beat. I have 42 million. Musk's big move is to just tell Toyota the truth. Toyota looks out the windshield for a few moments. A sale, even at this price, would save Toyota the shame of closing the plant down, something Toyota has never done before. His face reveals nothing.

10:35Musk holds his breath. I think we can work something out. Musk is shocked. The dream is coming true. The men shake, sealing the deal. Musk is getting a billion-dollar factory for$42 million. Once again, Tesla is back off life support. For the moment. When the deal is officially announced in May, there's a new angle that's even better for Tesla. Not only is Toyota selling Musk the assembly plant in Fremont, but Toyota is pledging to buy$50 million worth of Tesla's common stock the minute the business goes public. For Musk, the alignment is another example of Tesla's standing in the automotive industry.

11:26As GM struggles with bankruptcy, Tesla is partnering with the biggest car company in the world to build an electric car future.

11:41At Cobo Center in Detroit, the 2010 edition of the annual Detroit Auto Show is in full swing. For more than a century, this show has been the prime display for upcoming car models. Hey, let's check out this Electric Avenue Showcase. It's a new thing, all the electrics and hybrids. Why not? Let's see what the visionaries are up to. God knows Dodge, Jeep, and Chrysler don't have anything new. The two veteran franchise dealers for Ford and Chevy are wandering the massive hull. They approach the 37 ,000 square foot exhibit dedicated to green vehicles. EVs are breathing life into an industry suffering from a major slump and severe economic woes.

12:25This'll be interesting. Since Tesla, everybody's trying to figure out what to do. They gotta get in the pool, but the question is how deep? It's a fair question for Detroit, especially since 98 % of car sales are still gas vehicles. The industry knows demand for hybrids and EVs will only grow. But there seems to be little to gain in going green if consumers aren't buying a lot of them. Look at this thing, the Tango. Looks like a golf cart on steroids. Yeah, but 0 to 60 in 4 seconds, a 200-mile range in all electric? Not bad. Check out the Mitsubishi iMiv. Not too sexy, but it's supposed to be out next fall.

13:12The men stroll Electric Avenue, past long rows of mostly small silver cars from around the world. They all tout at least a 100-mile range, using mostly lithium-ion battery technology. And they're all in the fight for the EV market. The Audi e-tron 2, the BMW concept Active E, the Volvo electric C30 among the contenders. Then they come to a cherry red Tesla Model S. And both dealers stop and stare. Wow, nice lines on this thing. And 300 miles per charge? We'll see if Musk can pull it off. He's promising to launch it in 2012. I'll believe it when I see it. Tesla's showing at the event makes a splash.

14:03The industry's environmental watchdog site, Green Car Reports, sizes them up and says the Model S, the Chevy Volt, the Nissan Leaf, and the Toyota Prius are the only cars at the show that matter. But anything can happen between now and 2012.

14:27Early June, at a bar in Hawthorne, California, where Tesla's HQ is based. Two attorneys hired to prep the company for its IPO are staring into their drinks, shaking their heads. Can you believe Elon was threatening to fire the entire team today? Sure, that's business as usual. He's going to micromanage the marketing to the bitter end, but no one's getting fired. Once we IPO, we'll have the money to get the Model S on the market. I'm guessing the offering will make at least$200 million. Probably. But remember, not everything is perfect with this company. That could affect things. True. It's been a money pit since they hung out a shingle.

15:09$290 million in losses against about$150 million in revenue. And they've only come out with one car, that Roadster. That's it. I don't think that's going to play well with investors. And if Musk wants to dominate the midsize sedan market like he says, he's going to go up against the Nissan Leaf and the Chevy Volt. They're both coming out this year and at half the price of a Model S. You know, the big question is how the hell is Musk going to deal with answering to thousands of stockholders? He's not too good about sharing control. He might explode like one of his SpaceX rockets. On June 29, 2010, Tesla goes public.

15:52It's the first IPO from a U.S. car company since Ford went public in 1956. And it's a success. As promised, Toyota buys$50 million worth of stock. Shares start at$17 and close at$23.98, a jump of 40%, raising$226 million. Tesla's market value is at$2.2 billion. It's a big step toward solid financial footing.

16:29Since rising from the ashes of a bankruptcy in July of 2009, General Motors has been trying to get back in the game. In November 2010, GM announces it will sink$163 million into reopening three manufacturing plants in and around the economically challenged city of Flint, Michigan. The investment is intended to fund the production of the Volt. For the town filled with unemployed autoworkers, it's good news. It's also an indication that GM is completely behind the plug-in hybrid. Despite the investment in the Volt, it's pretty clear that GM's bread and butter still comes from Chevy and GMC full-size pickups, powered by gasoline.

17:16In 2010, GM sells nearly 600 ,000 trucks, controlling 40 % of the market. The popularity of these gas-sucking American icons is a reminder of how far Musk has to go in driving them off the road. But with Musk's promise to mass-produce the Model S by 2012, there's one significant issue. How exactly will he sell the Model S? He only has a handful of showrooms, and he has no interest in having dealerships. And that puts Musk squarely in front of a Texas-sized roadblock.

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20:05It's May 2011 at the Texas Legislative Offices in Austin. Tesla is ready to go to war with the Lone Star State. Texas law prohibits carmakers from selling cars directly, which is Tesla's plan. Instead, they must be sold in Detroit's traditional manner, through dealerships. Tesla executive George Blankenship is meeting with a lawmaker. Blankenship is ready to fight if needed, but he prefers a more non-confrontational approach. Before we get into this, I have a roadster parked downstairs if you'd like to take it for a spin. Just saying. The lawmaker smiles. Well, sir, that certainly sounds like a good time, but it's not going to get you any closer to changing the law in Texas.

20:54Blankenship forces a chuckle. He was handpicked by Musk as Tesla's new vice president of sales and ownership experience. Working with Steve Jobs, Blankenship created Apple's unique store experience. It's exactly the exclusive high-tech vibe Musk is looking for with his new showrooms. As you may know, we're going to open a showroom in Houston in October to feature the new Model S. There's a huge demand for Tesla EVs in your state. So, if we could, I'd like to suggest... I'm sorry, Mr. Blankenship, but this is just the way it is. Dealerships are powerful here, very well connected politically. And no one wants to see people put out of business just so a carmaker can sell directly.

21:39And dealerships mark up sticker prices, which means Texas car buyers pay more. Like I said, that's the law. I've looked at the law. We may have a workaround. What if we open a showroom that only offers education and instruction on Tesla vehicles? No actual selling on the premises. The legislator frowns and scans through the regulations. Well, there's nothing that prohibits that exactly. Excellent. But that will be addressed and likely changed in the next legislative session. Blankenship is prepped for this. That means it'll be two years before the law can actually be changed. We're good until then.

22:25The legislator exhales and shrugs. Blankenship smiles at the man and dangles the keys to the roadster. Thank you, sir. Now, how about a drive around the block? Texas and its hugely profitable car market isn't the only state prohibiting direct sales. Seventeen others either allow only limited direct sales or ban them completely. Tesla scored a temporary victory in Texas, but it'll have to be repeated across the country. If Tesla is going to finally take on Motor City at its own game at the production level, the Model S has to be able to sell on the scale of Detroit, too.

23:11Blankenship's Texas soft-sell solution is an interactive gallery with large computer touchscreen displays in the mold of what he created for the Apple stores. Tesla installs these galleries at high-end shopping malls, where shoppers can crawl through vehicles to see how they look and feel. A potential buyer can get on a screen, see an image of the car, and pick things like color, interior, and add-ons. They can plug in their driving habits and figure potential savings by going electric. Unlike the classic hard-sell showrooms of Detroit's longtime brands, this is meant to be an immersive, user-friendly experience.

23:52No one works on commission, which removes the sales pressure. It's all about drawing people into the cult of Tesla, something that's paramount to Musk. When a customer is ready to make a purchase, they enter their information on a computer and wait for a call from Tesla's Colorado headquarters for pricing and delivery details. Under Texas law, no Teslas can be delivered within the state until they're paid for. Blankenship's loophole works in Texas, though it's unclear whether this will work in other states where direct car sales are illegal. And this has to happen for Tesla if it's going to grow beyond a niche market.

24:41It's April 2011 at the New York Auto Show in Manhattan's Jacob Javits Convention Center. BMW North America CEO Jim O'Donnell sits down with an industry reporter. O'Donnell is not as open-minded as GM's Volt champion Bob Lutz. So things are ramping up in the EV world. BMW has the hybrid i3 model slated for 2013. Tesla's close to selling out the Model S run of 6 ,500 in just pre-orders. The same will likely happen for the pure electric Nissan Leaf. Oh, I don't think so. That's marketing hype. Most people who are claiming they want an EV will back off due to the ranging cost. And what about charging stations?

25:25We're talking enormous infrastructure problems. What about home charging? Well, to install a wallbox home charger can cost$20 ,000 alone. And if you live in an apartment, then what? BMW's current marketing slogan is diesel, good, clean, fun. Exactly, and that's true. BMW's new 3 Series diesel isn't like a Mercedes of the 70s. It's not clattering around, spewing out soot and fumes. And unlike an EV, it's got a tremendous range. I mean, trust me, Americans want options beyond EVs. As production gears up for the promised mid-2012 delivery date of the Model S, Musk is already thinking about the next Tesla EV.

26:12His plan, sparked by his own five children, is to create an affordable SUV. He's seen firsthand what's needed to drive a bunch of kids around. This new, larger vehicle is meant to put Detroit on notice. He's calling it the Model X. By summer of 2011, Tesla desperately needs to start production of the Model S to hit the fast-approaching 2012 release date. Though the company inherited some equipment with the purchase of the Fremont factory, it needs more extremely expensive machinery, and funds are dwindling. The government loan, the deals with Daimler and Toyota, and the stock windfall are just not enough to make the Model S.

27:03Tesla's engineering team is headed by well-respected veteran Jaguar and Lotus engineer Peter Rawlinson. He's been pushing the Model S team to the max. They're working crazy hours, redesigning the car repeatedly. Rawlinson is making headway, completing test versions. But Musk demands expensive, time-consuming changes. And he's growing impatient. The two men have little in common. Rawlinson is British, refined and well-mannered. Musk is often just the opposite. He's openly hostile with Rawlinson, whose nerves are frayed. In December, he leaves for England to spend the holidays with his ailing mother.

27:53It's early January 2012. Musk grabs his phone and glances at the caller ID. It's Rawlinson. Peter, are you back? I need you to get busy on some Model S design issues immediately. I'm not coming back, Elon. That's hilarious. Now, seriously, I don't have time to joke around. You need to get out to the Fremont plant and... I'm not joking. I'm sorry, but I've had enough. I've done my best. The whole team has. But, Elon, we can't meet your demands. I'm staying in England. Good luck with the Model S. It will be a superb vehicle. Musk realizes that Rawlinson is serious. He also realizes the precarious position production is suddenly in.